Not all Financial Advisors are Created Equal

By Daniel Dingus CFP?, MBA, AIF? , President, Fragasso Financial Advisors

Finding the right financial advisor can be a daunting and confusing task given the many channels and companies that offer such services. Each of these various configurations have different aspects to their business model offering unique services that may, or may not, align with your goals. Below is a list with a small sampling of these various channels which helps define their business, general structure, and even a compensation structure in some. Within these channels, we will also define the Fragasso Financial Advisors’ model and why we are different than many others.

Each model described in this article has pros and cons that an investor would want to fully understand before choosing an advisor, and this overview offers only a few points in each situation.

Independent Registered Investment Advisors

Fragasso Financial Advisors is an Independent Registered Investment Advisor and has many characteristics of the national firms in that we are free of in-house proprietary products and act as a fiduciary. Where we differ from many other independent advisors is that our financial advisors are compensated primarily through a salaried-based system. In fact, this is very different to the industry at large. Additionally, Fragasso Financial Advisors is majority-owned by an Employee Stock Ownership Plan (E.S.O.P.), whereby the employees have a vested interest in the success of the client and the firm. This provides the continuity and perpetuity of the firm without the need for an abrupt sale or assistance from outside corporations.

National Registered Investment Advisors

This may be one of the fastest growing areas in the various models. Many smaller firms are selling their practices to large national firms that are “rolling up” these small independent groups seeking a succession plan, or a payout. While independence remains paramount for these firms, and in many cases, they can serve as a fiduciary, there are potential changes taking place that may present a disconnect between local representatives and the corporate umbrella. The acquired firm may retain their name or take up the national corporate name, depending on the circumstances. Regardless, these firms operate within a disciplined financial structure that in some cases may put the business entity and its business investors before localized clients.

Full-Service Broker Dealer

These are often some of the most well-known firms in the industry, and they offer services across a wide range of resources given their corporate structure. As with the banks, they typically offer their own investment products, and the advisors are employees of the firm. There may also be various incentives to cross-sell banking services within the wealth management space. Lastly, many of the large full-service broker dealers have an investment arm that is predicated on trading securities and financing companies for private and public markets.

Regional Broker Dealers

This is a further distinction within the broker dealer space given the recent proliferation of this model both nationally and locally in Pittsburgh. Regional broker dealers are very similar to the full-service broker dealers of national recognition in that the advisors are typically employees of the larger organization and have a proliferation of products the mothership may promote. There is also usually a hub and spoke system whereby such items as portfolio management may be run from the distant corporate headquarters. Compensation to the advisor is tied to their respective client base.

Banks

The proliferation of banks in the wealth management and financial planning space has grown over the last few decades. Many large banks offer a sense of strength in the institution and name recognition. In many cases, they may also promote their own deposit products and lending services from their core line of business, which is of course, banking. Many banks continue to purchase or add wealth management departments as a key opportunity for cross-selling services and for additional fee revenue to their institutions.

Insurance Firms

Many financial advisors are aligned with insurance firms that offer financial planning services within their business. While many serve admirably in the role of planning, you may find their expertise and value is centered on insurance-based products and not a comprehensive approach to your financial goals.

The Independent Registered Investment Advisor (RIA) structure that identifies with Fragasso, brings the best of each model while maintaining independence and delivering comprehensive financial planning and wealth management in a team environment. These factors combined with a collaborative employee-owned firm provides a unique model that can serve you, your children, and your children’s children for many years to come.

Contact us to learn more, or watch our "What Makes Fragasso Different?" video.